July 2014: An Answer to The Most Dreaded Financial Question

June 12, 2014
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How’s it going?

We hope you are gearing up for an exciting 4th of July weekend. This month we have some very valuable insights and articles that will be useful in drafting your Declaration of Financial Independence.

Here’s what’s lighting up in our newsletter version of a financial fireworks show:

  • An Answer To The Most Dreaded Financial Question
  • Illumination’s Media Spotlight: Financially Intelligent Insights
  • The Market Scoreboard for June 2014


An Answer To The Most Dreaded Financial Question

Where has your money gone?

What did you spend your money on over the last month?

What are your expenses are on a monthly basis?

When I ask people these questions, the response I get is typically one part clamoring up and another part tossing a number at me. It’s pretty apparent that most people aren’t tracking their money. If they are tracking their money- it’s in their mind as their numbers are usually way off. My experience is when people give me an estimate of their expenses, if they aren’t tracking them, is usually about 20-30% under reality. The fact is you don’t know truly what your money is doing unless you’re taking active steps towards tracking it (and doing it in your mind alone doesn’t work for anyone).

Even if the guesstimate I get is accurate on a monthly basis, they typically miss all of the less frequent and usually larger expenses that are a regular part of everyone’s financial world but are routinely neglected because they’re not frequent (e.g. new tires for your car, life insurance premiums, gifts etc.). What’s not frequent and right in our face we tend to forget and this causes financial breakdowns.

So again, ask yourself, do I really know where I spend my money? If the answer is no, you need to do something about that.

Why is this so important, because your true spending needs (e.g. the spending that you need to be happy) literally determines your wealth and the time it takes to become financially independent.

A first step in any financially intelligent planning is the process to gain awareness. It’s imperative for you to become money conscious and in touch with what’s going on with your dollars and cents. It’s only after that, can you take action and do something about it. Without knowing your money – truly understanding where your money goes and seeing your expenses, you can’t take the next step from spender to saver to wealth builder.

Below is a great info graphic on where the average American spends their money and the costly mistakes that are made. Many of which trace their roots back to clear lack of financial awareness.

It’s your turn to take action and figure out where you spend your money and if you are making any common mistakes. It’s pretty simple. You can do it with a pencil and paper. Simply, list out exactly what you spend your money on a monthly basis. Do the same thing on the income side. Heck, you can even jump start the process by signing up for www.Mint.com and have it pull in all of your spending from the past few months automatically. Take some time to review it, understand what areas provide you with the most value and which don’t. Repeat this process regularly and you will see a real shift in your financial life returns.

Being aware of your money and tracking your money is something that should never stop. Make it a habit and it will give you confidence, motivation and reap you enormously positive towards living a financial intelligent life.

Where Has the Money Gone?

Source: MoneyChoice.org


Illumination’s Media Spotlight: Financially Intelligent Insights

 Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.

Our Appearances

YoProWealth: The Experts on Investing

The Fiscal Times: The Hidden Risk of Home Equity Loans

 Personal Finance

The Wall Street Journal: From Spender to Saver to Investor

Star Tribune: Money can’t buy happiness, but it can help pay for it


Success: Advice from My Dad For Father’s Day

Darren Hardy: The Chase

 Great Videos, Podcasts & TED Talks

TED: How To Make Hard Choices

Eventual Millionaire: How to Network With Thought Leaders


Market Scoreboard

Here is the market scoreboard for June 2014

June Market Scoreboard

Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: www.stockcharts.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

The first half of the year came to the conclusion on Monday. All of the major market asset classes realized gains during the month of June as well as for the 2nd quarter 2014. Gold led the way with a nearly 7% gain while emerging markets followed with a 2% increase and US stocks rose 1.83% for June.

It is interesting to note that over the past three months, bonds have outperformed stocks and defensive sectors for the most part beat their “higher” risk cyclical counterparts. Defensive meaning utilities, consumer staples and health care vs. technology, financials and materials. The same pattern can be seen for the first half of the year as a whole. On the global landscape, emerging markets fared the best over the past 6 months, rallying in excess of 8%. This is interest in that investors were 31% underweight emerging markets entering the 2nd quarter.

According to a recent survey by Bank of America Merrill Lynch, expectations are very high. Fund managers are 48% overweight equities, their highest allocation since January. At the same time, Bonds and Commodities are under owned and unloved. Remember what happened to emerging markets this past 6 months as they were one of the most unloved sectors – they outperformed. When you are in the majority, it’s time to watch out. On a similar note, U.S. adviser’s expectations are similarly optimistic, with 3.7 times more bulls than bears. This is an extreme. According to Schaeffers, when such bullish extremes occur, the S&P 500 averaged a loss of 1.49% over the next 6 months and was positive less than half the time.

On the economic front, GDP declined at a stunning 2.9% in the first quarter of 2014. The decline is much greater than we typically see outside of a recession. Even if the recovery is continuing, it underscores how dramatically economic performance lags potential. The latest Fed forecasts for 2014, published on June 18th, include a substantially lower 2014 GDP guesstimate, now at 2.1% to 2.3%, down from its previous outlook of 2.8% to 3.0% growth.

Sub-par growth is giving room for more of the ultam easy monetary policy from central banks around the world. However, there are warnings coming from some of the greatest investors on this front. Wilbur Ross, head of WL Ross & Co. recently said: “I’ve felt for some time that the ultimate bubble, when we look back a few years from now, is going to be sovereign debt, both U.S. and other, because it’s way below any sort of reversion to the mean of interest rates.”

With strong performance continuing from the equity markets, one should not get too complacent. Markus Brunnermeier, a financial economist specializing in financial crises and panics recently stated “When measured market volatility is low (as it is now), people feel empowered to take on more leverage and more liquidity mismatch, which leaves the whole system more prone to sharp movements. This dynamic occurred during the ‘Great Moderation.’


“The bad news is time flies. The good news is you’re the pilot– Michale Altshuler

It’s incredible we are halfway thru 2014 already. In two days, my once infant son turns a true toddler two. His favorite new toy is a plastic airplane. Despite how fast the time is flying, I am fortunate to have an amazing co-pilot and very special passengers on this flight. Thanks for taking some time to fly with us.

All the Best,

Matt & The Illumination Wealth Team

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The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.